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Chap2 Case 1

Gabriel won a cash prize of Php 20,000 from a robotics competition. On his father's advice, he visits a bank to open a fixed deposit account. His sister Heart, a finance graduate, explains to Gabriel that banks act as financial intermediaries by channeling household savings into profitable business ventures. Other financial intermediaries that can perform this role include mutual funds and life insurance companies. Mutual funds allow smaller investors like Gabriel to invest in a diversified portfolio managed by a fund manager. Life insurance companies pool investment funds and provide death benefits while also investing the funds in assets like company shares and bonds.

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Xyza Faye Regalado
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709 views

Chap2 Case 1

Gabriel won a cash prize of Php 20,000 from a robotics competition. On his father's advice, he visits a bank to open a fixed deposit account. His sister Heart, a finance graduate, explains to Gabriel that banks act as financial intermediaries by channeling household savings into profitable business ventures. Other financial intermediaries that can perform this role include mutual funds and life insurance companies. Mutual funds allow smaller investors like Gabriel to invest in a diversified portfolio managed by a fund manager. Life insurance companies pool investment funds and provide death benefits while also investing the funds in assets like company shares and bonds.

Uploaded by

Xyza Faye Regalado
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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CASE 1

Gabriel won a cash prize of Php 20,000 in the national level Robotics Competition. On the advice of his father, he
visits a nearby bank to open a fixed deposit account in his name with the prize money. His sister, Heart, accompanied
him to the bank. On reaching the bank, he notices big banners which are placed within the premises containing
information about the various arrangements through which corporates may raise the capital through the bank. Being
a finance graduate, Heart explains to Gabriel that banks play the role of the financial intermediary by helping in the
process of channelizing the savings of the households into the most profitable business ventures.

a. Aside from bank, suggest other financial intermediaries that help in the process of channelizing the savings of
the households into the most productive to use.

Mutual Funds

These are mutual investment schemes which pool the small savings of individual investors such as Gabriel and enable
a bigger investment fund. Gabriel may negotiate to a fund manager who will manage his funds for him. The fund
manager is the one who will decide and create his investment portfolio and Gabriel will also benefit from that
especially if his mutual fund contains an asset that pays dividends and it has lesser risk since investing in mutual funds
is an easy way to make a diversified investment.

Life Insurance Companies

Gabriel may opt to invest his money to a life insurance company. Once he purchase his insurance coverage, death
insurance for instance, he will not only be financially covered in case of death, but the funds he invested to the
company will be added to a large pool of money of which the insurance company will use these funds to invest in
financial securities such as company shares and bonds.

b. Identify the functions of those financial intermediaries that you will be suggesting.

Asset Storage
In the case of life insurance company, Gabriel will be issued a contract of insurance from the company signifying his
indemnification against loss or damage in exchange for the money he invested to the company. If Gabriel signed up
for a death insurance, the money he stored in the company will be used upon his death.

Providing Loans

The financial intermediaries mentioned above will use the money from small investors like Gabriel to finance the
needs of fund demanders such as the company raising for additional capital. Gabriel will benefit from his investment,
the financial intermediary will earn money through providing loans to fund demanders, and the fund demanders will
benefit as well from the money they borrowed. Not only the market participants but the economy as a whole will have
advantage since the money continuously circulates in the economy.

Investments

Another function on a financial intermediary is that the money investment to them will be invested as well to wider
types of financial instruments. This will help their clients grow their investments. Apart from managing client’s funds,
they also provide investment and financial advice to help them choose ideal investments.

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